Business Practice in the UAE and GCC - Case Study Example

Business practice in UAE and GCC of the of the Introduction This research study would thoroughly analyze business operations of Air Arabia. Air Arabia is a well-known low cost airline, founded in 2003. The airline company has its headquarters located in Sharjah Freight Centre. Air Arabia has expanded its services across 51 destinations in Central Asia, Middle East, India subcontinent, Europe and North Africa. This airline group is serving 28 destinations from Casablanca, Tangier, Nador and Fez. 6 more destinations are accessed by Air Arabia which is located in Alexandria. The main airport base of this airline is Sharjah International Airport. Air Arabia has its competitive advantage not only in terms of low cost carrier services but even through providing extended connections to various flights. It is considered to be biggest and first low cost airline in North Africa and Middle East. The firm is currently operating across wide array of global emerging markets. Global presence has supported long term growth and profitability of this airline company. This study would highlight products, target market, business strategies, expansion possibilities and even contribution towards development and growth of UAE economy. Products In the present scenario, Air Arabia possesses a total of 90 airports, located across Europe, Middle East, Asia, Egypt and North Africa. Fleet size of this airline is 38. The major aim of this group is to enhance customer satisfaction level and access wide number of destinations. Fleet of Air Arabia encompasses the aircraft known as Airbus A320-200. The total number of passengers which can be accommodated in this aircraft is 162/168. Air Arabia belongs to the aviation industry and so it is inclined towards providing exceptional service rather than highlighting any such product line. There is economic class layout maintained in this aircraft so as to offer low prices to passengers. Apart from air transportation, Air Arabia is also actively indulged into providing cargo services. This cargo service is offered across 50 destinations. The airline group aims at setting forth its position as leading cargo trend setter. Express products are efficiently handled by Air Arabia that is well aligned with cargo operations. Major products carried by this airline are general cargo, perishable cargo, post box mail, courier services, human remains and company material. Market Segments The trend of low cost airlines has emerged in the recent years due to increase in customer demand. This is simply because network carriers focus on cost reduction and expansion of passenger base. Air Arabia is the leading low cost airline in the region and this has been possible due to its appropriate market segmentation. Market segmentation can be defined as dividing the total market into smaller customer segments. This segmentation mechanism is implemented before targeting so as to ensure that products can be marketed properly to suitable customers. There are mainly three hubs which have supported operations of Air Arabia such as Sharjah Airport, Egypt Airport and Mohamed V Airport located in Casablanca. Air Arabia also plays a critical role within tourism and travel industry. In travel industry, Air Arabia aims at providing travel facilities to customers who desire to travel across globe. Being a part of tourism industry ultimately benefits hotel owners (Air Arabia, 2013). The market segment of this airline group is not only customers who prefer to travel in economy class but also travel agents and hotel owners. Target Market Target market resembles a particular consumer market segment which helps in acquiring high profit margins by a company. Air Arabia operates in an intensely competitive environment where many airlines are offering low cost carrier services. The airlines mainly target those individuals who are belonging to low income segment. This low income customer segment have desire to travel across geographical regions. These customers previously could not travel by flights due to high price of air transport. Even customers belonging to high income group can be targeted who prefers to save money. Air Arabia offers low prices to passengers but maintains exceptional quality service. This airline firm target individuals having large family size or young generation people who cannot afford expensive flight tickets. Target market of Air Arabia is mainly low income group consumer segment. Expansion Possibilities Air Arabia has witnessed increased growth and development over the past few years. This airline has invested lump sum amount in its operations. First mover advantage has been explored by this airline. Air Arabia has successfully explored multi-hub model and it provided them with an advantage to access wide array of destinations. There is high expansion possibility because of multi-hub model followed by Air Arabia. Growing network and emerging markets are easily accessible by Air Arabia because of this form of model. The company operates on the basis of highest seat load factor across the aviation industry. Quality control and cost savings forms the competitive edge of Air Arabia. The airline has its strategic base situated around emerging markets. Under served regions are targeted by the company which encompasses population of about 3 billion. Multi-continental growth of Air Arabia has been highlighted in figure 1. Figure 1: Multi-continental growth (Source: Air Arabia, 2014) Figure 1 clearly indicates that growth margins of Air Arabia have been distinct over past few years. Their growth across different destinations shall support expansion of the firm in future years. Expansion possibility of Air Arabia is closely knitted with increased revenue margin of its subsidiary business. The bottom line operations of Air Arabia are enhanced because of high revenue growth of all subsidiaries as represented in figure 2. Figure 2: Strong Subsidiaries (Source: Air Arabia, 2014) Air Arabia has strong association with travel and tourism industry. It can be stated that high profit margins of these subsidiaries as per figure 2 will increase expansion possibilities of Air Arabia. This airline has already expanded on its destination base in order to access wider consumer market segment. The growth in aviation sector in UAE can also be considered as a key driver behind expansion strategy of Air Arabia. Figure 3: Annual growth rate and passenger traffic (Source: CAPA, 2015) Figure3 states that there has been increase in passenger rate since past few years and it shall facilitate growth of airlines. This kind of growth will enhance upon expansion possibility of Air Arabia (CAPA, 2015). The high revenue margins and scope of growth shall encourage the firm to expand on its airport bases and fleet size. Strategic Management The business strategy of Air Arabia is to offer low prices to passengers by eliminating all possible frill benefits. These benefits increase overall cost of air transport. This in turn restricts customers from accessing such expensive flight tickets. There was high customer demand in the industry where passengers could travel from one location to another at least cost possible. It can be stated that this hidden market demand was explored by Air Arabia. This airline provided a large base of aircrafts to its customers. The extended destination base enabled Air Arabia to offer high interconnectivity across locations. Customers could travel across countries with Air Arabia at minimum prices. Reducing frill benefits helped the airline to save costs which were later passed on to passengers. Contribution towards UAE economy Air Arabia plays a critical role in terms of improving economic conditions of GCC nations and UAE. Aviation industry is associated with development of tourism industry in these geographical regions. This industry helps in attracting individuals to specific destinations. Economic stability is brought forth through passengers travelling across regions by air transport. Aviation industry has been able to improve upon economic conditions of this region by increasing employment opportunities. This industry has provided 416,500 jobs in GCC nations and UAE. Statistics reveal that airline industry is not only responsible for offering jobs but it is a gateway for tourists. There are about 11million visitors who travel to Dubai because of its exotic destinations. Amongst this visitor’s base, there are people who have less affordability range and are inclined towards low cost airlines. Air Arabia has gained market significance due to increased demand of these customers. On the other hand, this airline has been able to attract passengers who previously could not travel to GCC nations due to lower affordability range. Statistical facts regarding contribution of aviation sector towards UAE economy has been demonstrated in figure 4. Figure 4: Impact of Aviation Industry (Source: Conventz and Thierstein, 2014) As outlined in figure 4, impact of aviation sector is prominent in employment conditions and tourism industry. Economic condition in GCC nations and UAE can be upgraded only when there is increased flow of funds. It has been stated in figure 4 that $13 billion is spent by visitors who travel to GCC nations and UAE (Conventz and Thierstein, 2014). Sharjah International Airport is the hub base for Air Arabia and figure 5 indicates passenger traffic in this particular airport. Figure 5: Passenger Growth at Key Airports (Source: Alpen Capital, 2014) 9.2% growth is observed in Sharjah International Airport. This increase in passenger base denotes high revenue margins secured by Air Arabia. Tourists travelling to UAE and GCC nations are solely responsible for smooth flow of funds. Economic stability is reached with the help of such funds which are allocated for better employment opportunities and development of tourism sector. Air Arabia not only facilitates its own revenue margins but even strengthens market position of its subsidiaries. The enhanced passenger base benefits tourism sector along with creating new business ventures in this region. To be more precise, destinations in GCC nations and UAE which was not accessible by individuals in earlier years can be effectively explored by people through such low cost airlines (Alpen Capital, 2014). Appropriate selection of target market segment has supported this airline to contribute towards economy of GCC nations and UAE. GDP growth of this economy has been enhanced due to employment opportunities provided by low cost airlines such as Air Arabia. Conclusion This study outlines contribution of Air Arabia towards economic development of GCC nations and UAE. Air Arabia can be stated as a renowned low cost airline that operates across extended base of destinations. This airline possesses first mover advantage as it is the first low cost carrier in North Africa and Middle East. The key emerging markets are accessed by Air Arabia and this initiates high profit margins for the company. There exist three main hubs of Air Arabia such as Egypt, UAE and Morocco. 89 destinations are accessed by Air Arabia, offering low priced flight tickets to passengers. Target market of Air Arabia is people belonging to middle income group segment. These individuals who opt for Air Arabia has desire to travel by flight but does not have affordability range. The growth of Air Arabia has enhanced market position of tourism and travel industry in UAE. Employment opportunities and rapid growth of tourism sector has helped in economic development of UAE and GCC nations. References Air Arabia. (2013). Annual report. Retrieved from: https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAA&url=http%3A%2F%2Fwww.airarabia.com%2Fsites%2Fairarabia%2Ffiles%2FAnnual_Report_2013_En.pdf&ei=Y6VMVaGcE9CfuQSA6YDYBw&usg=AFQjCNGU7W6ztE5ljvzS9j8YVwNyMdgXEw&sig2=9fvAHf2l3I5SITvkhB0sYQ&bvm=bv.92765956,d.c2E . Air Arabia. (2014). Investor presentation. Retrieved from: https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAA&url=http%3A%2F%2Fwww.airarabia.com%2Fsites%2Fairarabia%2Ffiles%2FAir%2520Arabia%2520IR%2520Presentation%2520Q2%2520%25202014.pdf&ei=K6hMVYukNNSpuwSA04G4Cw&usg=AFQjCNHWGYXMOutup5EN889IUJIcFN7vQQ&sig2=TG1ZtFZRbV7sHkfeMXm31A&bvm=bv.92765956,d.c2E . Alpen Capital. (2014). GCC aviation industry. Retrieved from: https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAA&url=http%3A%2F%2Fwww.alpencapital.com%2Fdownloads%2FGCC_Aviation_Sector_Report_2014.pdf&ei=U6RMVbXqKpOGuASq7IHwBQ&usg=AFQjCNE_bDOWBbOSGK9GLicj78wlRGl_wg&sig2=k8JAuj0DS_RZnxT3b7NQow&bvm=bv.92765956,d.c2E . CAPA. (2015). Why Emirates and friends will soon reshape American aviation. Retrieved from: http://centreforaviation.com/analysis/why-emirates-and-friends-will-soon-reshape-american-aviation-109135 . Conventz, S. and Thierstein, A. (2014). Airports, cities and regions. 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